Supplier Diversification: Faster Fulfillment, Less Risk

Today's consumers, with access to competitive options with the click of a button, are accustomed to and demand two-day shipping or faster. With the supply chain interruptions we've seen the logistics industry experience due to numerous factors, fulfillment speed has been a nearly impossible thing to promise.

Businesses striving to meet their customers' speed and cost demands into the foreseeable future need to look to new and more flexible methods to achieve it. One such method is something so simple that it just simply goes overlooked more often than not; supplier diversification. In this blog post, we'll explore how supplier diversification can help you achieve faster fulfillment speeds, reduce costs, and build a more resilient supply chain.

How Supplier Diversification Contributes to Your Fulfillment Speeds

Order fulfillment speed is the rate in the warehouse at which inventory is picked, packed, and loaded after an order has been placed. An effective fulfillment process means that the right product can be delivered to consumers quickly and efficiently with the lowest possible cost. It also means faster delivery times without expedited shipping, which can be a serious strain on resources.

There are lots of factors that impact fulfillment speed, like warehouse automation and optimization, distribution center diversification, inventory management strategies, picking/packing procedures, and labor training. In this article, though, we're focusing on one key factor that not a lot of supply chains realize can have a massive impact on fulfillment speed: the supplier.

Delivery time depends not only on the actual shipping time but also relies heavily upon the fulfillment phase. A faster fulfillment helps reduce the need for expedited shipping in order to meet the same promised delivery timeline. This, in turn, cuts transportation costs by utilizing less expensive shipping options while still delivering quickly and offering a high level of customer service. The same is true for fulfillment. It's not just the processes of fulfillment in the warehouse that determine speed, but also the step that comes before it, aka the suppliers. Nor is it the rate at which a supplier can churn out inventory, though.

It's the diversification of your suppliers that can actually offer the greatest advances in fulfillment speed.

What is Supplier Diversification?

Supplier diversification refers to the strategy of partnering with multiple suppliers for raw materials and manufactured goods. The usage of a broad range of suppliers allows you to increase procurement flexibility while mitigating risk and speeding up the fulfillment process.

Reduced Shortages

Diversifying suppliers ensures you always have inventory on hand. If one supplier has a disruption, you can work with your other suppliers to pick up the slack. Since you already have a diversification plan in place, your other trusted suppliers know how to manufacture your products, so there's less lag time when working to solve these kinds of issues. Shortages lead to serious delays in fulfillment. Ridding the risk of shortages means streamlining the fulfillment process and ensuring in-stock items and on-time deliveries.

Reduced Excess

You don't want inventory shortages, but you also don't want excess inventory sitting in the warehouse. With supplier diversification, you can hold less safety stock, knowing you can call on other suppliers if you start to run low. This faster replenishment cycle not only saves money on holding costs like warehouse space, labor costs, and inevitable (and costly) markdowns, but it also radically enhances fulfillment speed.

With less inventory in the warehouse, your employees (or robots) can pick items significantly faster. It's like trying to find a penny amongst ten dimes, as opposed to trying to find a penny in an entire change jar. Still, you want to hold a small inventory buffer to ensure you're never "out of stock" of your customers' favorites. With supplier diversification, though, you can actually hold less safety stock and use additional suppliers as the inventory buffer. Essentially, you can create a cycle of inventory incoming from different suppliers to avoid over-stocking while still guaranteeing you don't run out of key products.

Flexible Inventory

Supply chains always demand flexibility, especially since the lifecycles of products have been becoming shorter and shorter. In this new era of business, we have quickly learned that we need supplier flexibility and contingency plans in order to merely stay afloat. Reduced shortages and excess of inventory creates a more flexible chain. If one supplier has to shut down due to a lack of safety measures or minimized labor, you can call upon your other suppliers to meet your inventory requirements. This means no lag time in the fulfillment process, so no holdups getting the right inventory out the door at the perfect time. Diversification equals flexibility, and flexibility equals speed.

Risk Mitigation

The supply chain, including fulfillment speeds, are at the whim of a variety of factors: natural disasters, electronic attacks, politics, economics, and even global pandemics. A risk mitigation strategy could (and does) mean the difference between ongoing success and bankruptcy. The most effective risk mitigation strategy is a diverse supplier base. If one supplier runs into a disruption upstream, you can shift procurement to one of your other suppliers on-deck to ensure you can continue to receive the goods you need to make sales and stay in business.

This kind of diversification is no longer just a backup plan. This defensive plan has to become part of your offense if you want to see cost savings and fast fulfillment times. It can take about four to six months to find the right supplier partner, so diversifying in "good times" gets you ahead in case something happens in the future. It can also speed up your order fulfillment now, so your revenue in those "good times" will skyrocket. This also means that if you need to cut ties with a supplier for whatever reason you can do so without having to worry about drastic disruptions in your supply chain. This gives you the freedom of constant reevaluation to ensure you're working with the best partners to protect your supply chain's efficacy.

Friendly Competition

Never pit your suppliers against each other. But if your suppliers know you have other options, they'll likely work harder to keep you around. Keep in mind that your business is the client of your supplier. That means they want to keep you around (just as much as you want to keep them around). This means that they'll work to deliver the highest quality customer service, especially if they know you're diversifying your suppliers. Everyone wants to be the best (and if they don't, you might want to consider not using them as a partner).

The goal is to establish strong, durable relationships with supplier partners who want the best for your business.

Successful Performance Metrics

Performance KPIs for fulfillment matter to stakeholders. The exec board wants to see that your operations have a high inventory turnover with low excess waste. By implementing supplier diversification, you can increase experience a few large benefits. These include things like better turnover rates, minimal superfluous maintenance costs, and faster fulfillment and delivery times—and those improved numbers will delight your shareholders and partners. That's why if you're looking for the first move towards improving operations performance metrics, we highly recommend looking into supplier diversification.

This approach has an impact on every aspect of the chain, from fulfillment speed to operational costs to last-mile delivery to risk management and beyond.

How to diversify suppliers effectively

1. Supplier Diversification doesn't mean doing business with everyone. Be strategic in the suppliers you choose. You want to select the right partners with which you can build a strong long-term relationship.
2. Diversify in terms of big and small suppliers. Small suppliers can often be easier to work with, but they're also more likely to run into supply chain disruptions. Large businesses may have more paperwork and poorer relationships, but they can often step up and deliver when needed. (These are generalizations, so make sure you delve deeper than "size" when researching a supplier.)
3. Diversify in terms of geographic locations. There may be a shut-down, natural disaster, or tariff imposition in one location. When this happens, you want suppliers in other regions to be able to pick up the slack.
4. Implement key technologies like blockchain tech, predictive analytics, inventory management programs, and artificial intelligence software. With more suppliers comes a more complex supply chain. Knowing this, you'll want to prepare for these complexities with centralized technology and workflow system.
5. Set key performance indicators (KPIs) for each supplier, particularly those metrics that focus on quality and health standards. This ensures your suppliers don't repeat mistakes while creating the most effective and consistent output.
6. Utilize an inventory management system to effectively balance the need for safety stock with the ability of the supplier diversification strategy to safeguard against shortages.
7. Implement fulfillment software to speed up fulfillment times while increasing your sales and revenue.
8. Create contingency plans with each supplier, so you can adjust quickly and flexibly to any changes upstream.
9. Establish common procedures among all suppliers to meet quality and assurance standards. Also establish a fair exit strategy if a supplier isn't meeting those standards and you'd like to cancel the contract.

Final Thoughts

Supplier diversification is a lot more than just finding new factories to produce your goods. It's about selecting the right supply partners to become a part of a complex supply chain network. A network that works seamlessly and transparently to deliver the best customer experience. This strategic move requires innovative technology and an experienced management team to ensure the supply chain is optimized for success in both the big picture as well as the little details. If you're looking for the right supply chain strategy for your business, Redwood Logistics offers cutting-edge consultation services. We partner with you to determine the best supply chain design. Additionally, we help you select the state-of-the-art technologies that will optimize your network.